‘Flipping’ used cars a thriving industry in Venezuela

With the world’s largest oil reserves and the cheapest gas anywhere, you’d think Venezuela is a driver’s paradise. Wrong. New cars are scarce and sellers of used ones — even clunkers — make a killing.

The counter-intuitive economics stem from rules imposed in 2003 by populist President Hugo Chavez that make it difficult for businesses to obtain hard currency and thus wildly expensive to import new cars and spare parts.

So demand for second-hand vehicles is huge, and they are even used as investments — a hedge against inflation so voracious it makes no sense to park money in a bank account.

“Only in Venezuela can the price of used cars go up,” said a man who gave his name as Alfredo, as he leaned against a 1995 Ford Lariat he wants to sell at a tidy profit of 8,000 bolivars, or 1,860 dollars, after owning it for three months.

Other great deals, if you’re on the selling end of the transaction: a Mitsubishi Lancer purchased second-hand in 2006 for 55,000 bolivars ($12,800 at the official exchange rate) now goes this for nearly twice as much.

No matter the model, year or number of previous owners, the price always goes up.

For years now, prospective car buyers who go to auto dealerships find the lots empty or almost empty. Waiting lists to buy such vehicles are endless.

Venezuela has a population of nearly 30 million people, but only about 121,000 new cars were sold last year, a drop of 8.2 percent from 2010, according to the Automotive Chamber, an industry group.

Economist Jesus Casique explains that the Chavez government makes it virtually impossible to acquire dollars at the official exchange rate of 4.3 bolivars to the greenback.

So business people have to buy them at the higher black market rate. In Venezuela, it is illegal to even publish what that number is.

“That raises prices. It makes it so that hardly anyone can buy new cars, therefore demand for and prices of second hand cars shoot up,” Casique told AFP.

Enter other factors: inflation running at an annual rate of 25 percent the past two years, and a limit on how much profit dealers can make on new cars but no such restriction when it comes to selling a used one, the economist added.

“Only in Venezuela,” Casique said.

The bottom line is that for many Venezuelans, used cars are attractive savings tools to protect against inflation, or a nice investment. For some, flipping used cars is a way to make a living.

Such is the case of Alfredo, the fake name of this former Caracas stock broker who for the past 15 years has done nothing but buy and sell second hand cars.

“To stay afloat you have to make a profit of between 5,000 and 8,000 bolivars (about $1,200 and $1,860) per car”, he said while showing a prospective buyer the interior of the blue Ford Lariat. His showcase is a street in western Caracas.

Right now, Alfredo has five cars in stock, including a Chevrolet Gran Blazer that he bought a month ago for 128,000 bolivars and, after fixing it up a bit, wants to turn around and sell at a 13 percent profit.

“If I leave that money in the bank, it loses value or I earn a tiny bit,” Alfredo. With his car-flipping business, he can earn 10 percent in a matter of just a few months.

“The best thing to do is buy and sell fast so the profit margin is higher than the increase in the rate of inflation,” he explains.

Then there is the case of Rocio, a 27-year-old journalist, whose father gave her a Renault Symbol in 2002. It cost him about 10,000 bolivars. A decade later she could sell it for six to nine times as much.

“I have always been very happy with this car. But now the situation is changing. I am thinking I could sell it to pay help pay for a masters degree abroad, or even help my parents pay for my younger brother’s studies abroad,” she said.

She said she also thought of unloading it and using the profit as a down payment on a brand spanking new car. But this is Venezuela.

“With my salary I could not make the payments. Even with a bank loan it is not a viable scenario,” Rocio added.